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Revenue Strategies: Testing the Pricing

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Although Alan Greenspan and the Feds have done a good job of keeping the lid on inþation, higher basic costs are forcing chief financial officers to consider boosting prices. CFOs expect to raise the prices of their companies' products 3.5 percent during the next year, up from an expected 2.2 percent just six months ago and just 0.8 percent a year ago, reports the most recent survey of the Financial Executives Institute/Duke University Fuqua School of Business. An earlier 2000 survey by FEI/Fuqua attributes the rise in prices to such cost factors as energy (+9.5 percent), health care (+8.6 percent), and employment (+4.7 percent). Add insurance to the mix as well. Observes Ned Rand, vice president and CFO of Atlanta- based insurance holding company Atlantic American Corp.: "By all accounts, the cyclical nature of insurance has turned, and increased pricing is being seen everywhere. Pricing had gotten to the point in the industry where it was barely adequate to support the risk it was insuring. Now the industry is recognizing that, and making efforts to increase prices to what are more reasonable levels for risk being insured." Rand says Atlantic American is looking to boost rates on all the lines it writes, and some of those increases will be substantial, such as 10 to 15 percent on workers' compensation. Still, there are several industries that are under competitive pressure to maintain prices. Rapidly expanding Credence Systems Corp., which tests semiconductors before they are packaged, reported revenue last year of $200 million, but expects at least a threefold jump this year. Based in Fremont, Calif., Credence prides itself on being the cheapest provider in the competitive market. "We look at the environment and make sure our pricing is typically the lowest," says Dennis Wolf, executive vice president and CFO. "This is a very important component of our business plan." Last year, Credence's market share for non-DRAM testing was 8 percent; it's currently about 13 percent. "We truly intend to in- crease our market share, so we use pricing as a strategic weapon," Wolf says. Steve Bergsman is a freelance writer.

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